Improving Your Profitability By Focusing on Stuff That Matters!

If you are not profitable enough, then make sure you listen to this episode now. It's interesting that Being a Busy fool is by far the most read blog on my website and not without good reason. Even though it was a blog I wrote many years ago and to be honest, it's not that long, it clearly resonates with a lot of people and it's also clearly a search term that a lot of business owners are typing in to Google. After all, we can all be really busy run ragged servicing clients, trying to catch our breath and and recognize that we are not doing many of those. Running the agency type tasks such as planning for the future, focusing on business development to make sure we've got a good pipeline because we are so busy stuck on the client service hamster wheel just trying to keep up with client demands and obviously retain our clients. And this results in us being busy fools and quite frankly staying poor. So I want to dig into the cause of this and give you some.

Ideas to start solving it.

So that's what we focused on in today's episode of the podcast. So let's get started. Rob I'm Rob Da Costa and this is the Agency Accelerator Podcast. As someone who has stood in your shoes, having started, grown and sold my own agency, I know just how it feels in the ups and downs of agency life. So this podcast aims to ease your journey just a little by sharing mine and my guests experiences and advice as you navigate your way to growing a profitable, sustainable and enjoyable business. If you are run ragged, super busy, but you look at your invoicing at the end of the month and your profitability and there doesn't seem to be a direct correlation between how busy you are and how much money you're bringing in, and most importantly how profitable you are, then we need to start diagnosing it. And of course there are a number of reasons why this happens, so we need to understand the reason before we can start fixing it. So it could be, quite frankly simply that you are undercharging. It could be that there is constant scope creep in the work that you're doing. You know when the client says hey, can you just and in their mind they think it's going to take five minutes, but your heart sinks because it actually takes you five hours to do them a favor in quotes. So it could be undercharging, could be scope creep. And there are many other reasons. But the reason I want to dig into today is that of over servicing.

Which is a bit of a pandemic in agencies and especially at the moment as we're heading into more kind of challenging economic times and potentially recession. Of course we all want to do a great job for our clients and, and we want to keep them. And we believe, and certainly younger people in our teams believe that the one way to do that is just to say yes when they ask us to do something. But that is a surefire way of being a busy fool and not having the capacity to take on more work because you are massively over servicing your current clients. Now, I've spoken about this many times before. I use this fantastic framework called standards.

And Extras with my group coaching program.

So everyone learns about that to make sure they can identify the difference between.

A standard service and an extra.

And most importantly, that the client can as well.

But we have to be measuring internal time so that we can measure people's.

Capacity and we can also translate client fees into time. Now, that might sound like I'm contradicting myself because if you've been listening to the podcast or you read my content, you know, I'm always telling you guys, you should never be selling time to your clients, and I still completely stand by that. They are not buying your time, they're buying an outcome. But that doesn't mean you, you shouldn't translate the work you're going to do for a client internally into hours. In fact, I absolutely believe that you have to do this if you want to measure efficiency, capacity, and also making sure that you are profitable. So the big solution to over servicing is twofold, really. First of all, it's putting the systems in place, which we'll talk about in a moment. So that's everything to do with time recording. And second of all, it's getting the mentality and the culture and the behavior and the understanding of your team members right. So they understand how to communicate to clients and they understand how to push back or how to say it's going to cost more if a client says, can you just.

So let's tackle these two one at a time.

And the first thing you need to.

Do before you can change behaviors and.

Get the right culture is put the right systems in. So it's a given that you need to use some time recording. Now, back when I ran my agency in the 90s and early 2000s, this is one things that we really got right.

But the only tools that were available.

To us then for time recording was using a spreadsheet, which is what we did. But nowadays there are some fantastic apps and tools out there that are very much designed towards sort of service based businesses and agencies and will work really well for you. And you can use them on your phone and on your computer and they're really easy to use once you've set them up properly. So things like Stream Time and Harvest and Toggle are all good time recording tools that my clients use. And at the end of the day you will never be able to know whether you are profitable with a client if you don't measure your time. So you win a new client, you create a brief and a scope of work and you talk about the outcomes that the client's looking for and then you go back to the office and you take that brief and that scope of work and you start setting up your time recording system, allocating time to different team members to make sure that they can deliver the project within the time and therefore in a profitable way, making sure you're hitting your margins of somewhere between 20 and 35%, I would say. So the first thing you've got to do is implement a time recording system and then work out how to break a scope of work or a brief or a project into internal time.

And then you want your team members to be able to sort of self manage. And I really like just the concept of using the RAG system for many, many things, but including this. A RAG stands for red, amber, green. So basically if I have X hours in a month to work on a project and I'm an account manager, then I'm halfway through the month and I've used half my X of hours so the green light is still on. But however, maybe I've got halfway through the month and I've actually used 3/4 of my hours. Now the amber light should be on and we probably want to have a conversation internally about this because we don't see the project momentum dying down for.

The last part of the month.

And of course if I'm halfway through.

The month and I've already used up.

My hours, then the red light goes on. Now if you use the red green amber system, then you really should never get to red because once things go amber, you should be sitting down and talking about it. So you want to get your team to have some self responsibility and self management here and awareness of that. So you have to give them access to the reporting part of these time recording tools so that they can self manage and bring it to your attention when things are in amber or when a client is asking for something that's way outside of the scope and the team member perhaps is afraid of saying no, but they can get some advice from you. And if you arm your team members with this information, they're much more likely to act in the way you want them to than if you kind of protect that information just for yourself, which is what a lot of agencies do. So you have to give the information to your team members if you want them to behave in the right way. And then of course, when a client is asking for more, or when a project is taking much longer than you anticipated, you can now take a kind of strategic view on what to do. Should you just suck it up and absorb that over servicing because you kind of feel you'll be able to catch back that time in the future? Or do you need to go and have a conversation? And remember there's always four answers to a question. When a client says can you just do something extra? So the answer could be yes or we can do it. The answer could be yes, we can do it. In the future, the answer could be yes, we can do it, but we need to drop something else. The answer could be yes, we can do it, but we need to charge you more. Or actually the fifth answer could be no, we can't do it. So it's never just a yes or a no answer. And it may well take, take you or the account director, if you have one, to go in and have that conversation. But you want the account manager or the people who are heading up the account to be the people that are bringing it to your attention. So you want to kind of train your team around that. And using the time recording and self responsibility, they can keep an eye on that. Now there's nothing worse than implementing a time recording system, getting everybody to use it. And two things happen. First of all, the leaders in the agency don't use it. So they're kind of saying do as I say, but not as I do. And the second thing is that people diligently fill in their timesheets, but the manager or you as the agency owner never actually stop and look at the timesheet. So they, they get demotivated because they feel like the information is being filled in, but they don't really know why. And it's all disappearing into a black hole. So if you've taken the time to implement time recording, you also need to take the time to look at the data, analyze the data, you give feedback and take action accordingly. So you need to allocate time every month to actually look at the reporting. And again, these systems today give you some really great insights. So it's not that difficult. You haven't Got to dig deep into the data, it will do it for you. But you need to allocate the time to do this and then give feedback. Like I said, if you want to motivate your team to do this, then you have to give them feedback. Otherwise they kind of feel like why on earth are they doing it. And to that end, when you do implement a time recording system into your agency, and I suggest you do this as early as you possibly can, so you might even put this system in place when it's just you, so you can measure and monitor your own time and check you're using it efficiently and then check that you're not over servicing. But if you put the system in early days, then it becomes easier to scale as you scale your agency. But you need to communicate to your team, if you have one, about why we are doing this, because they will probably think you're doing it just to check up on them and to check their working and especially when we have lots of remote workers and if that's their view of this, then they're not going to be very motivated to fill them in or they're not going to fill the sheets in honestly. So you want to be clear that this is all about being efficient, making sure we're profitable, understanding where there might be training needs, understanding where we've underquoted and we're having to over service so we can get it right in the future, you want to make sure your team members understand all of that so that they are motivated to complete their timesheets. Now talking about accuracy, one of the things I would really encourage you not to do when you're setting up your time sheets, and this is quite a granular piece of advice, is don't have a admin other kind of catch all bucket in there because you will find a lot of people putting a lot of time into this kind of catch all bucket where they are not quite sure what they did with that time, so they'll just throw it in there. So my advice to you is don't have that kind of admin other type of category in your time recording because you will find a lot of people putting a lot of time in there. Okay, so that's the sort of first dimension of this, which is implementing the actual system itself. And I'd highly recommend that you document the process of how to use this. You use some loom videos to do it so that when you have new staff join your business or remote workers or even freelancers, you can train them.

Very quickly and get them to use.

The system in the way that you want them to and also get them up to speed quickly. Now, the second dimension is kind of the cultural application of this as well.

And I sort of touched upon this already.

But you need to make sure that your team have some commerciality. Even the most junior an account exec needs to understand that if we just say yes to clients all the time, we stop being a profitable business and.

We start becoming a charity.

And when we are a charity, we're making absolutely no money. So you need to explain to people.

That the reason we're doing this is.

To make sure that we are quoting correctly, make sure we are translating clients.

Client briefs into time, make sure we.

Are measuring that time effectively and not over servicing much more than sort of 10%. And so they need to understand that. And as I said already, they also need to understand the reasons why you are asking them to complete timesheets, not because you don't trust them, but because you want to make sure that we are being profitable. And of course, another benefit of time recording is that you can identify training and skills gaps. Because if someone puts in that they've taken a day to write a press release, then you probably think, well, that's too long.

It really should only be half a.

Day or quarter a day. So I need to understand why it's taken so long. And when you're digging into this, you don't want to make it look like the Spanish Inquisition. You just want to help people understand the reason why. So the cultural implementation of this is just as important as the actual system itself. Because if you don't get that piece right, people will not be motivated to fill timesheets in. They'll feel you don't trust them, and.

They will not put accurate information into the timesheet.

So communicate carefully about why you're doing.

This and the benefit to them as.

Well as to the overall agency, and you're much more likely to get team members that are compliant. Now, it's important that they understand this isn't something optional or they're going to fill this in when they get a moment, or they're doing you a favor if they fill it in. They have to understand that it is a crucial part of their job. And to that end, I would actually put entering accurate and timely information into.

Our time recording system as one of.

Their objectives in their roles and responsibilities. Now, have you made it this far in the podcast and you are an entrepreneurial agency leader, then well done. Because talking about systems like this might send shivers down Your spine. You might even be kind of objecting to what I'm saying because you think it inhibits creativity and all of that stuff. But trust me, if you don't put it in now, then it's so much harder to retrospectively fit it when you're a bigger agency. And I have never met an agency who is profitable without having time recording in place. And trust me, I've worked with many, many hundreds of agencies over the past 30 years and I know that this is something that you have to do. And as I said right back at the beginning, I did many things wrong when I ran my agency.

But having time recording was one of the things that we got right and.

It made sure that we were always hitting our margin targets and our profitability. Now, as I also said at the beginning, this is just one of the reasons why you might be a busy fall and why you. Why you might not be as profitable as you hope. There are many other reasons. And it often starts by making sure you are targeting your products and services to the right market, making sure that you have your pricing in line with your product and your service levels, and also that you are selling on value so clients are willing to pay the higher fee. And of course, if you are a niched agency, you then you will be seen as a specialist. And of course specialists can charge more money than generalists. So there's a whole bunch of other reasons why. But I just wanted to pick on one of them today, which is all about making sure that you can measure efficiency and capacity internally. Now another benefit of this is that you will know when you need to hire the next person because there's often this really big disconnect in agencies where everybody looks super busy, but you look at the bottom line and you think, well, actually we're not as profitable as we should be and people should have spare capacity based on the amount of income work that they're doing. But because you're not measuring their actual.

Efficiency, you can't really diagnose what the problem is.

So if that's something that's going on for you, then one of the first.

Things you need to do is implement a time recording system.

Now, I'll put a few links in the show notes today to some time recording systems that some of my clients use. I've got no particular affinity to any one of them. You just need to find a system that works for you.

And as I said, there are many.

Great systems that are totally geared towards agencies that work on the desktop as well as on your phone. As an app, so they really go wherever you happen to be working, and they make it as easy as possible. So there isn't really an excuse anymore for not doing this or not finding a system that is really aligned to the way your agency runs. Okay, so hope you found today useful. Another really practical episode. Maybe something that you want to start thinking about implementing over the next few months and doesn't have to be expensive, but it is something that you really have to do. So as ever, if you found today's episode useful, please do consider leaving a review and share the episode with your colleagues so that we can get this podcast far and wide.

But other than that, I'll see you.

Next Thursday for the next episode of the Agency Accelerator Podcast.